Pacific King Shipping Holdings Pte Ltd (in Compulsory Liquidation) (A Company Incorporated in Singapore) v. Huang Ziqiang

CACV 94/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 94 OF 2014

(ON APPEAL FROM HCMP NO 2464 OF 2012)

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J U D G M E N T

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Hon Poon J (giving the Judgment of the Court) :

A. INTRODUCTION

1.This is the defendant’s appeal against the order of Zervos J dated 4 April 2014 varying the ex parte order granted by Toh J on 1 November 2012 (“Hong Kong Injunction”) by adding a further disclosure order (“Further Disclosure Order”) in these terms :

“ DISCLOSURE ORDER

15(a) The Hongkong and Shanghai Banking Corporation Limited (‘HSBC’) do disclose to the Plaintiff’s solicitors, Gall and Gall be at liberty to inspect and take copies of, all documents in the possession, custody or power of HSBC relating to :

i) details, records and/or documents in connection with the opening of the Defendant’s accounts with HSBC including but not limited to the HSBC Premier account numbered [A], and the HSBC account numbered [B] (the ‘Disclosed Accounts’);

ii) details and/or records of all transactions in the Defendant’s accounts including, without limitation, bank vouchers, forms, instructions, transaction advices, cheques and correspondence between HSBC and any person or entity involved in the aforesaid transactions from 1 January 2008 to date;

iii) details, records and/or documents (including without limitation, documents, records or forms identifying the beneficial owners of the account(s) described in this sub-paragraph (iii)) relating to all bank accounts of the Defendant, whether within insider or outside Hong Kong, of which HSBC has knowledge, including but not limited to the Disclosed Accounts; and

iv) details, of which HSBC has knowledge, of all payments made by or to the Defendant or any other entity or person which HSBC knows or has reason to believe is connected to the Defendant, from 1 January 2008 to date.

(b) HSBC do comply with the orders specified in paragraph 15(a) above within 7 days of service of the order;

(c) The Plaintiff do reimburse HSBC for its costs of complying with paragraph 15(a) above, on an indemnity basis;

(d)  HSBC have liberty to apply, on notice, if necessary on an expedited or urgent basis, in relation to paragraph 15(a), 15(b) or 15(c) above.”

2.The background leading to this appeal may be summarized as follows.

B.   BACKGROUND

B1.   The parties

3.The plaintiff is a Singapore company.  It was incorporated on 17 October 2003.  Its principal activities were shipping lines and ship management services.  On 17 September 2010, the High Court of Singapore ordered the plaintiff to be wound up and appointed Mr Thomas James Reid as its liquidator.

4.The defendant and Mr Yang Yung Yong Jun were the plaintiff’s two shareholders since its incorporation, holding 96.32% and 3.68% of its share capital respectively.  They sold their shares to Pacific King Shipping Group Limited (“PKSGL”), a company incorporated in the Cayman Islands, on 5 June 2008 and became the shareholders of PKSGL.  PKSGL is now the holding company of the plaintiff.

5.The defendant was the plaintiff’s chief executive officer and chairman of the board of directors since its incorporation until his resignation on 1 March 2009.  Since then he was appointed as an advisor of the plaintiff.

6.Mr Yang was a director of the plaintiff and its chief financial officer since 15 April 2004.  He took over from the defendant as chief executive officer and chairman of the board of directors from 1 March 2009, until his own resignation on 13 July 2009.

7.It is the plaintiff’s case that despite his resignation on 1 March 2009, the defendant remained a person whose directions and instructions were acted upon by the plaintiff’s other appointed directors. He also remained a signatory of the plaintiff’ bank accounts after 1 March 2009.

B2.   Proceedings in Singapore

8.The plaintiff complained that between 31 January 2008 and 1 December 2009 the defendant had caused the plaintiff to pay him and Mr Yang over US$66 million when the plaintiff was insolvent, in breach of his fiduciary duties owed to the plaintiff as its officer.  Those payments consisted of :

(1)  dividends of approximately US$49.50 million;

(2)  bonuses of approximately US$1.85 million;

(3)  purchase of a Rolls Royce car and a yacht, valued at US$4.27 million;

(4)  reimbursement of entertainment and travel expenses of approximately US$839,000.00; and

(5)  reimbursement of petty cash claims of approximately US$9.97 million.

9.As a fall back, the plaintiff asserted that even if it was solvent at the material times, it would be entitled to seek payment from the defendant of approximately US$34.30 million, being the value of dividends and bonuses paid to him and Mr Yang.

10.The plaintiff further complained that the defendant had failed to collect a debt of over US$3.90 million owed to the plaintiff by PKSGL, of which he and Mr Yang were shareholders at the time.

11.On 31 October 2012, the plaintiff commenced proceedings against the defendant and Mr Yang in Singapore to recover the funds misappropriated by them as outlined above.  On 1 November 2012, the Singaporean Court granted a worldwide freezing injunction over the defendant’s assets (“Singaporean Injunction”).  The Singaporean Court dismissed the defendant’s application to discharge the injunction on 3 July 2013.

12.On 4 November 2013, the Singaporean Court further ordered the defendant to give discovery of certain documents.

B3.   Proceedings in Hong Kong

13.On 1 November 2012, that is, the same day when it obtained the Singaporean Injunction, the plaintiff took out an originating summons under section 21M of the High Court Ordinance, Cap 4, applying for a Mareva Injunction in aid of the Singaporean Injunction.  The application was heard and allowed by Toh J.  Her Ladyship granted the Hong Kong Injunction, restraining the defendant from disposing of his assets in Hong Kong up to the value of US$70,084,892.64.  She also ordered the defendant to disclose all his assets of an individual value of HK$50,000.00 or more in Hong Kong (“Initial Disclosure Order”).

14.In compliance with the Disclosure Order, the defendant filed an affirmation on 9 November 2012 in which he disclosed that :

“ Bank Accounts

2. As at 30^th October 2012, I have a premier account no [A] at [HSBC] with the following balance :

(a) HKD Savings	HK$	50,589.84
(b) HKD Current	HK$	600,000.00
(c) FCY Savings	SGD	5.20
(d) Investments (local securities)	HK$	17,073,700.00
(e) Mortgages	HK$	12,353,610.89

3.   I also have a HSBC account [B] with the following balance :

(a) Cash	HK$	201,000.00
(b) Securities	HK$	3,275,000.00

MPF Account

4.   I have a MPF account no [C] with BOCI-Prudential (Scheme no [D]).  The present value of the MPF account is about HK$70,000.00

Immovable Properties

5.   I am the registered owner of the following properties :

(a)  Flat RA, 58^th Floor, Tower 5, Le Prestige of Lohas Park, 1 Lohas Park Road, Tseung Kwan O, NT, Hong Kong (‘1^st Property’)

(b)  Flat RB, 58^th Floor, Tower 5, Le Prestige of Lohas Park, 1 Lohas Park Road, Tseung Kwan O, NT, Hong Kong (‘2^nd Property’)

(c)  Flat RA, 59^th Floor, Tower 5, Le Prestige of Lohas Park, 1 Lohas Park Road, Tseung Kwan O, NT, Hong Kong (‘3^rd Property’)

(d)  Flat RB, 59^th Floor, Tower 5, Le Prestige of Lohas Park, 1 Lohas Park Road, Tseung Kwan O, NT, Hong Kong (‘4^th Property’)

1^st Property

6.   I had on 18^th September 2012 entered into a sale and purchase agreement of the 1^st Property at a consideration of HK$5,400,000.00.  The sale was duly completed on 2^nd November 2012…

7.   On completion, the balance of the purchase price received by me was in the sum of HK$4,860,000.00.  After deducting the redemption money, legal costs, estate agent’s fees and other miscellaneous expenses, the net balance in the sum of HK$1,676,433.08 is currently stakeheld by my solicitors Messrs Edmund Cheung & Co (‘EC’) under the Injunction Order…

2^nd, 3^rd and 4^th Properties

8.   …[Before] the issuance of the [Hong Kong Injunction], I had entered into the sale and purchase agreements of the 2^nd, 3^rd and 4^th Properties on 24^th September 2012, 14^th September 2012 and 27^th September 2012 respectively.

9.   Pursuant to the sale and purchase agreements, the completion dates of the sale of the 2^nd, 3^rd and 4^th Properties are 23^rd November 2012, 28^th December 2012 and 10^th December 2012 respectively.

…”

15.By a consent order dated 16 November 2012, the defendant was permitted to complete the sales of the 2^nd, 3^rd and 4^th Properties.  The net sale proceeds are now stake-held by EC.

16.The defendant applied to discharge the Hong Kong Injunction.  The plaintiff was dissatisfied with the disclosure made by the defendant in his affirmation of 9 November 2012 and applied for further disclosure.  The two applications were heard by Zervos J on 26 and 27 February 2014.  By a judgment dated 4 April 2014, the learned Judge dismissed the defendant’s discharge application and made the Further Discovery Order.

17.The defendant then sought leave to appeal against the Further Disclosure Order from the Judge who, on 22 April 2014, gave leave to appeal on two limited grounds :

“ (a) the Plaintiff’s claim is not a proprietary claim and the Further Disclosure Order was wrongly granted; and

(b)  the Further Disclosure Order was oppressive, unnecessary and unjustifiably wide.”

The Judge also granted a stay of the Further Disclosure Order.

18.The defendant then applied to the Court of Appeal for leave to appeal on more elaborated grounds.  Such leave was granted by Cheung CJHC and Lam VP on 16 June 2014.  That resulted in the supplementary notice of appeal of the same date containing a total of 7 grounds of appeal.

19.By a respondent notice dated 21 July 2104, the plaintiff sought to support the Further Disclosure Order by two additional grounds.

20.As will become apparent below, it is not necessary for us to deal with the grounds contained in the supplementary notice of appeal or the respondent’s notice in detail.  What we are going to discuss is sufficient to dispose of the appeal before us.

C.   DISCUSSION

21.Making the Further Disclosure Order fell within the Judge’s discretion.  Unless it can be demonstrated that the Judge acted under a mistake of law, or in disregard of principle, or under a misapprehension of facts, or that he took into account irrelevant matters or the conclusion which he reached was outside the generous ambit within which a reasonable disagreement is possible, the Court of Appeal will not interfere. This brings us to examine Zervos J’s reasoning in making the Further Disclosure Order.

C1.   The Judge’s reasoning

22.The Judge first recited section 21 of the High Court Ordinance.  He then referred to the judgment of Ma J (as the Chief Justice then was) in A Co v B Co [2002] 3 HKLRD 111, §§10 to 13, where the relevant considerations for granting a Norwich Pharmacal order were summarized. He then went on to say :[1]

“ 51.  It is well established that in order to make a freezing injunction effective and to ensure the judicial processes are not defeated, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets.  The defendant relies on Arab Monetary Fund v Hashim and Ors (No 5) [1992] 2 All ER 911 to resist the disclosure order but in my view it does not assist him.  In that case, it was held that a plaintiff who sought an order for discovery against a person who was not a party to the action had to demonstrate a real prospect that the information sought might lead to the location or preservation of assets to which the plaintiff was making a proprietary claim.  I am satisfied that the conditions as required are met in this case in that there is a real prospect that the information sought will lead to the location and preservation of assets which are the subject of the substantive proceedings in Singapore. The accounts relate to the defendant and are clearly relevant to these proceedings.  It is further complained that the relief sought against the defendant in the Singapore proceedings is a monetary sum and the claim is not proprietary in nature.  I disagree.  This is clearly a proprietary claim where the plaintiff is claiming against the defendant and Yang a breach of their fiduciary duties and the misappropriation of funds and property belonging to the plaintiff.  Given the nature and scope of the plaintiff’s claim, I do not consider this order to be a fishing exercise, nor do I view it as oppressive and unnecessary, as suggested by the defendant.  I agree it is wide, but for good reason, as I have explained in refusing to discharge the injunction.  The order seeks access to information and records of the defendant’s banking transactions during the relevant time it is claimed that he misappropriated funds and property belonging to the plaintiff.

52.  It has been revealed in the course of these proceedings that the defendant maintains two bank accounts with the HSBC which purportedly hold substantial funds.  On inquiry, however, it has been revealed that one of the account numbers is invalid.  The plaintiff’s application is made in order to preserve assets or realistically lead to the discovery of assets covered by the freezing injunctive order.

53.  On the information before me, the defendant has successively realised assets in two jurisdictions (Singapore and Hong Kong) with the intention of transferring the proceeds obtained to another jurisdiction (Mainland China) where he intends to relocate and reside.  Both Singapore and Hong Kong have established common law legal systems that provide effective and efficient means for the conduct and resolution of civil disputes and the enforcement of court orders which can have both domestic and international application.  In my view, the defendant has quite deliberately realised his assets quickly in both these jurisdictions in order to put his funds and himself beyond the reach of the judicial processes of these jurisdictions.

54.  I am satisfied that the information sought to be disclosed would provide relevant information as to the status of bank accounts and the funds held in them in order to have a complete picture of the assets under the defendant’s control for the purpose of the claim and in aid of the freezing injunctive order.  It is complained by the defendant that the plaintiff did not seek the same terms for a disclosure order in Singapore.  I do not see that as an impediment to the order sought as long as the legal requirements are satisfied, and it is justified.  The specified bank accounts are located in Hong Kong and it is appropriate for this order to be made.  I have no difficulty making such an order, despite the objection from the defendant that this is a matter for the primary court in Singapore.  The defendant also takes issue with the disclosure order on the basis that it may be used in the Singapore proceedings.  The very purpose of s 21M, as reinforced by s 21N, is to provide assistance in the form of interim relief to a court of a different jurisdiction in order to support and facilitate the foreign proceedings where it is just and convenient to do so.  I am satisfied that it is.  I note the liquidator has given an express undertaking not to use to documents obtained on discovery for any purpose beyond the Singapore or Hong Kong proceedings. The disclosure order sought under s 21, in my view, can be made and granted by virtue of s 21M in its own right or as a power ancillary to or in support of the freezing injunctive order granted under s 21M.”

C2.   A fundamental error

23.Central to the Judge’s reasoning is his view that the plaintiff’s claim against the defendant is proprietary in nature. However, contrary to his view, it is undisputedly a monetary claim.  That is in fact so stated in the supporting affirmation of the liquidator.  Indeed, as we understand Mr Lee, counsel for the defendant, who also appeared before the Judge, he has not argued otherwise.  So with respect to the Judge, he erred when he said that the plaintiff’s claim is a proprietary claim.  That error is fundamental because as we will explain in a moment, it materially affects how the court exercises its discretion in granting disclosure in aid of a Mareva injunction.

24.For completeness, we would also point out that the Judge’s reference to the Norwich Pharmacal principles might not be entirely apposite.  Those principles can be invoked where a defendant has set out deliberately to make himself judgment proof so as to deny the plaintiff an effective remedy for his claim and the third party has facilitated or been involved in this, even if this has been done by him innocently.  Here, there is no allegation whatsoever that HSBC, the defendant’s banker, had facilitated or participated in any of the alleged misconduct committed by him.  We think the general principles that we will set out shortly are more pertinent.

25.Tainted by the fundamental error concerning the nature of the plaintiff’s claim, the Further Disclosure Order cannot stand and must be set aside on this ground alone.[2]  We are entitled to exercise the discretion afresh to see if the Further Disclosure Order should be granted.

C3.   Exercising the discretion afresh

26.We first discuss the general principles.

C3.1  The general principles

27.Under section 21M(1) of the High Court Ordinance, the Court of First Instance may grant an interlocutory injunction in aid of foreign proceedings.  As rightly observed by the Judge,[3] a court in the exercise of this power is required to abide by the general principles governing interim relief, which means that the power is the same as if the order were granted under section 21L of the High Court Ordinance in relation to Hong Kong proceedings.  It follows that in the context of ordering disclosure ancillary to a Mareva injunction, the general principles are just the same, irrespective of whether the underlying proceedings are purely domestic or in aid of some foreign proceedings.

28.What concern this appeal specifically are those principles which govern disclosure against a third party bank in the context of a domestic Mareva injunction granted in aid of some foreign proceedings. In this regard, whether or not the case involves a proprietary claim makes a marked difference.

29.If the case involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court not only has jurisdiction to grant an injunction restraining the disposal of that property, it may in addition make orders designed to ascertain the whereabouts of that property.  In particular, it may order a third party bank to give discovery of documents in relation to the bank account of a defendant who is alleged to have defrauded the plaintiff of his assets.  In CTO (HK) Ltd v Li Man Chiu & Others [2002] 2 HKLRD 875, I summarized the position thus :

“ 10.  To make a Mareva injunction effective, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets and in the case of a proprietary claim, the whereabouts of the missing trust funds : see A v C (No 1) [1981] QB 956 (note).  The primary purpose of the discovery order is to preserve the assets or property which might otherwise be dissipated notwithstanding the injunction.

11.  It is not uncommon that a plaintiff, like the plaintiff here, seeks to invoke s 21of the Evidence Ordinance (Cap 8) for an order that it may inspect and take copies of any entries in a banker’s record.  The bank may or may not be summonsed before the court when such an application is taken out : see sub‑s (2).

12.  Though the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order is justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived and delay might result in the dissipation of the funds before trial : Bankers Trust Co v Shapira [1980] 1 WLR 1274.  The plaintiff would normally be required to give an undertaking that such information would be used only for the purposes of the action to trace the funds and not for any other purposes.

13.  In Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911, Hoffmann J (as he then was) imposed three limits on the Bankers Trust Co v Shapira [1980] 1 WLR 1274 jurisdiction at pp 918E-920A.  First, the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim.  For the jurisdiction rests upon the proposition that unless the assets in question can be located and secured, the ultimate determination of ownership of those assets may be frustrated by their removal or dissipation and there will be no point in calling on the third party at the trial to produce the required documents or give the requested information.  Second, the jurisdiction is more restricted than a request to a party for general discovery on an issue.  When documents are required to be disclosed, the third party should be entitled to the same specificity in the documents he is asked to produce as he would be served with a subpoena.  Likewise, if he is asked for information, the questions should be directed with specificity to ascertaining the whereabouts of the assets in question.  Third, even if the application is prima facie falling with the Bankers Trust principle, the court needs to balance the potential advantage against the detriment to the person against whom the order is sought, not merely in terms of costs (for which he is ordinarily compensated on an indemnity basis by the terms of the order) but by way of invasion of privacy and requiring breach of obligations of confidence to others.”

30.Where the case falls within these well established principles, the court will not hesitate in ordering disclosure against a thirty party bank.

31.If, however, the case does not involve a proprietary claim, the position is different.  As noted by the learned editors in Gee on Commercial Injunctions, 5^th Edition, at §22.039 :

“ (i) Case (1) : purposes for which the information may be needed

In cases not based on a proprietary claim it is unusual for the claimant to seek information from third parties for the purpose of the court proceedings concerning the granting or continuation of Mareva relief. However, such situations can occur; eg there may be an issue as to whether certain assets belong beneficially to the defendant, and therefore should be subject to a Mareva injunction, or information may be needed to enable the court to formulate injunctions against several defendants in appropriate terms, as in A v C, or to make a Mareva injunction fully effective (eg by enabling the court to specify particular assets in the order which can then be notified to non-parties holding the defendant’s assets). It may be that information is needed because the defendant cannot be relied upon to obey the court order and it is necessary to take steps to preserve the assets in the hands of non‑parties.” (Emphasis supplied)

32.The main underlying consideration for ordering disclosure is to prevent abuse by the defendant to frustrate or defeat the very purpose of the Mareva injunction : see A v C [1980] 1 QB 956, per Goff J (as he then was) at p 959E-F.  Absent any evidence of abuse such as non-compliance of the Mareva injunction, the court will normally refuse to order further disclosure in additional to the standard disclosure.  Thus in RACP Pharmaceutical Holdings Ltd v Li Xiaobo, CACV 139/2007, unreported, 19 September 2007, at §15, citing Bekhor & Co Ltd v Bilton [1981] 1 QB 923, Le Pichon JA said :

“ … Discovery directed at finding out whether the defendant had ‘dissipated’ or ‘concealed’ [the monies which the plaintiff paid the defendant]. In other words, ‘policing’, is not a legitimate purpose for making a disclosure order.”

33.We next apply the general principles to the present case.

C3.2  Applying the general principles

34.As already pointed out, the plaintiff raised no proprietary claim against the defendant.  The plaintiff cannot avail itself of the general principles pertaining to such a case.

35.Mr Lee’s submissions in support of the Further Disclosure Order essentially boiled down to two main contentions.

36.Mr Lee first argued that the plaintiff needed the Further Disclosure Order to prevent abuse.  However, there is simply no evidence that the defendant had failed to comply with the Hong Kong Injunction or, in particular, the Initial Disclosure Order.  There is no basis for ordering further disclosure on this basis.

37.Mr Lee next submitted that there is a huge disparity between the value of payments made by the plaintiff to the defendant, and the value of assets later sold by the defendant, and the present balances in the defendant’s HSBC accounts.  The plaintiff needed the Further Disclosure Order to aid its claim by identifying the location of funds originating from the plaintiff, especially in the period between 2010 and 2012, that is, after the defendant relocated to Hong Kong and when he disposed of his Hong Kong properties.  Mr Lee submitted that in this sense, it is really the Mareva injunction which is ancillary to the disclosure order, rather than the disclosure order which is ancillary to the Mareva injunction.  As and when the funds or assets are located, appropriate remedies will be sought, including proceedings in the jurisdictions concerned.  In our view, this is no more than a fishing expedition going well beyond the scope of the Hong Kong Injunction, which is only directed at the defendant’s assets in Hong Kong.  That is simply impermissible.

38.Mr Lee placed heavy reliance on Republic of Haiti & Others v Duvalier & Others [1990] 1 QB 202; Grupo Torras SA & Another v Sheikh Fahad Mohammed Al-Sabah & Others, unreported, 16 February 1994, a decision of Steyn LJ; and a unreported decision of the Guernsey Court of Appeal in Seed International Limited v Tracey & Others, 18 December 2003, to support his arguments.  With respect, counsel’s reliance on these cases is all misplaced.

39.In Republic of Haiti & Others v Duvalier & Others, the Republic of Haiti, together with five of its agencies as plaintiffs, started proceedings in France, where the defendants were resident, to recover US$120 million alleged to be the republic’s money embezzled by the defendants.  The plaintiffs issued a writ in England claiming orders restraining the defendants from disposing of certain of their assets meanwhile and requiring the defendants to disclose information relating to the assets. On the parties’ cross-applications in the English proceedings, the court made orders pursuant to section 25(1) of the Civil Jurisdiction and Judgments Act 1982 restraining the defendants from dealing with their assets wherever situated, which represented the proceeds of the payments complained of in the French action and compelling the defendants to disclose information relating to their assets.  Further, Knox J ordered, ex parte, the defendants, acting by their solicitors, to make disclosure as to the nature, location and value of the defendant’s assets.  The solicitors’ subsequent appeal against the disclosure order was rejected by the Court of Appeal.  Knox J’s ex parte order was later upheld by Laggett J.  On appeal, one of the issues that the Court of Appeal had to address was : should there be a restraint on assets which are out of the jurisdiction.[4] As noted by Staughton LJ, the crucial feature was that the Republic of Haiti did not seek any substantive relief in England.  It sought only information as to where the assets of the Duvalier family were and a temporary restraint on dealing with those assets.  Those remedies were sought in aid of the French action.[5]  Staughton LJ said at pp 213G‑214G :

“ In the light of recent authority, Mr Gee conceded that the court has power to restrain a defendant who is not resident here from dealing with his assets which are out of the jurisdiction. He desires only to keep the point open in case this dispute goes further. Nevertheless, I consider that, as the issue goes to the jurisdiction of this court and is of considerable general importance, we ought to examine it. In doing so it is necessary to travel over some ground which is also relevant to discretion.

It may be that the powers of the court are wider, and certainly discretion is more readily exercised, if a plaintiff’s claim is what is called a tracing claim. For my part, I think that the true distinction lies between a proprietary claim on the one hand, and a claim which seeks only a money judgment on the other. A proprietary claim is one by which the plaintiff seeks the return of chattels or land which are his property, or claims that a specified debt is owed by a third party to him and not to the defendant.

Thus far there is no difficulty. A plaintiff who seeks to enforce a claim of that kind will more readily be afforded interim remedies, in order to preserve the asset which he is seeking to recover, than one who merely seeks a judgment for debt or damages. But if the asset has been converted into some other form of property, the question of tracing arises. If the defendant stole the plaintiff’s peas, sold them and bought beans with the proceeds, the plaintiff claims that the beans are his property. Or if the defendant misappropriated the plaintiff’s credit balance with the X bank, and established a credit with the Y bank from the proceeds, the plaintiff claims that the debt due from the Y bank is his property. In that last case, if the proceedings are brought by the plaintiff against the defendant only, the relief claimed can be no more than a declaration, and an injunction against interference with the plaintiff’s property. Ultimately the right must be enforced against the debtor -- in my example, the Y bank.

With that introduction I turn to consider whether the claim which the plaintiffs seek to enforce in France is a proprietary claim. New evidence has emerged since this dispute was last before the Court of Appeal, when the proceedings were ex parte so far as the defendants were concerned. In form the claim in the French action is for damages in tort. But process is available there to attach specific assets held by the defendants, which would result in the republic having priority over other creditors. The republic has in fact made use of that process in respect of two assets-- a flat in Paris and a chateau in France. It is not yet sought any proprietary remedy in respect of other assets of the Duvalier family in the French proceedings because it does not know what or where those assets are. The very object of the English proceedings is to find out. When they are discovered, I do not doubt that the republic will seek to assert any proprietary remedy that may be available, whether in France or some other jurisdiction.

In that state of affairs I would not go so far as to say that the action in France, in aid of which these proceedings are said to be brought, is itself a proprietary or tracing claim.  It does not presently assert ownership of any of the assets expected to be revealed by orders in the English proceedings.  But I am confident that ownership will be asserted when and where the assets are found.  This is then something of a hybrid situation; and one should perhaps consider it on the basis that interim relief is sought in aid of a monetary claim only, without any claim to ownership of the Duvaliers’ assets.”

40.Staughton LJ then referred to various authorities and concluded that the court had jurisdiction to grant the worldwide injunction sought, although it would be rare to do so.[6]  On discretion, he had this to say at pp 216H-217B :

“ It is beyond question that the injunction granted by Knox J and upheld by Leggatt J was a most unusual measure, such as should very rarely be granted. But this case is most unusual. It is not the nature or strength of the republic’s cause of action which puts it in that category. What to my mind is determinative is the plain and admitted intention of the defendants to move their assets out of the reach of the courts of law, coupled with the resources they have obtained and the skill they have hitherto shown in doing that, and the vast amount of money involved. This case demands international co-operation between all nations.”

41.On disclosure, the principal objection raised by the defendants concerned the use which the Republic of Haiti might make of the information obtained.  Basically, it was answered by a reworded undertaking excepting disclosure of the material for which privilege was claimed.[7]

42.As it can be readily seen, Republic of Haiti & Others v Duvalier & Others is a most unusual and exceptional case.  It involved a large scale fraud.  The defendants intended to and had the ability to move the embezzled funds beyond the reach of the courts.  The Mareva injunction granted was a worldwide injunction.  The disclosure was required to locate the whereabouts of the embezzled funds or assets representing those funds. That case can be easily distinguishable from the present case.  Here, no fraud is alleged against the defendant. The Hong Kong Injunction is only confined to the defendant’s assets within jurisdiction.  Republic of Haiti & Others v Duvalier & Others does not assist the plaintiff here.

43.In Grupo Torras SA & Another v Sheikh Fahad Mohammed Al-Sabah & Others, the central question was whether the judge was right in refusing to discharge a disclosure order annexed to a worldwide Mareva injunction pending a decision on a challenge to the jurisdiction of the English court.  It also raised an issue of legal principles as to the nature of a judge’s discretion to make a discourse order in such circumstances.  Counsel for the defendants argued that the discretion was a narrow one.  Where there was or was likely to be a serious challenge to its jurisdiction, the court should in normal circumstances refuse any sort of relief which could not be undone if the court had no jurisdiction.  It should only grant such relief if there are exceptional circumstances justifying it. The judge erred in ordering disclosure in the absence of such circumstances. In rejecting that argument, Steyn LJ said :

“ The consequences of accepting Mr Smith’s submission must be considered. If the discretion to make a disclosure Ord is as narrow as Mr Smith says the worldwide Mareva injunction will be relatively toothless procedure in the fight against rampant transnational fraud. In many such cases, despite a cogent case of fraud, the connections of transactions with different countries will enable a defendant to raise jurisdictional challenges which may take months to resolve at first instance, many months to determine in the Court of Appeal and even longer to decide in the House of Lords. And there may be a reference to the European Court. During such a lengthy delay it would be impossible to ‘police’ the Mareva injunction, and that is the purpose of the disclosure order.

The importance of this policy factor is underlined by a consideration of the link between a worldwide Mareva injunction and a mandatory disclosure order. It is undoubtedly right that as a matter of legal principle a disclosure Ord is ancillary to the worldwide Mareva order. That is so whether the making of the disclosure Ord is regarded as adjectival upon the court’s statutory power under s 37(3) of the Supreme Court Act 1981 to issue a Mareva injunction or as falling within the court’s inherent jurisdiction. Mr Veeder submits that the discretion to order disclosure arises both from the statue and from the inherent jurisdiction of the court. I agree. Given the strict legal position it is of some relevance to consider the link in practice between the Mareva injunction and the disclosure order. In a seminal art Mr Lawrence Collins has explained that link : The Territorial Reach of Mareva Injunctions, 105 LQR [1989] 262. Mr Collins said at 297 :

‘In those cases where an effective order can be made, it is likely to be the disclosure order which will be the most useful in practical terms. If proper disclosure is made of assets abroad, the plaintiff will be in a position to make an application in the relevant foreign court for an attachment. If the foreign court is in a 1968 Convention Contracting State, it is likely that the courts of that State will exercise an Article 24 jurisdiction to make provisional orders in aid of proceedings in England. If the State is not a Contracting State, then the same result will follow in those countries which would allow an attachment to be made in aid of proceedings pending in other jurisdictions; it may be that the number of such countries will be very small, and that in most countries it will be necessary to start fresh, parallel proceedings on the substance and obtain security in those proceedings.

The practical consequence is that it is really the Mareva injunction which is ancillary to the disclosure order, rather than the traditional relationship in which it was the disclosure order which was ancillary to the Mareva injunction. For the disclosure order will be the main remedy in England, and the Mareva injunction will, in the words of Nicholls LJ in Babanaft, be a ‘holding’ injunction, to give the plaintiff time to apply to the relevant foreign court for appropriate orders of attachment or the like. Then an undertaking in the form required in Derby & Co Ltd v Weldon (No 1), or a variant of it, will give the English court the power to control the plaintiff’s exercise of its right to seek attachments in foreign countries, in order to prevent tactical harassment of a defendant and to limit the plaintiff’s security.’

If this is right, as I believe it to be, the consequence of an acceptance of Mr Smith’s argument would be a drastic emasculation of the utility of this exceptional but useful remedy.

But ultimately one has to return to legal principle. For my Pt I would accept Mr Veeder’s submission that since an interlocutory injunction may be granted on assumptions of fact and law, it follows that an interlocutory injunction may be granted on an assumption that there is jurisdiction. That is so in respect of the inherent jurisdiction to grant a disclosure order. Similarly, it is so on the basis that the disclosure Ord is adjectival on the statutory power contained in s 37(3) of the Supreme Court Act 1981 to make a worldwide Mareva injunction. And the statute contains no hint of the legal principle advanced on behalf of Sheik Fahad.

Despite Mr Smith’s attractive and careful arguments, I consider that the power to order a disclosure Ord is not limited in the way he submits.  When rarely and in exceptional cases a worldwide Mareva is granted, a disclosure order will usually follow.  On the other hand, I would emphasise that a disclosure should only be made for a purpose for which the power exists, namely to ‘police’ the Mareva injunction.  But when one bears in mind the exceptional nature of the remedy of a worldwide Mareva injunction, I do not find it at all surprising that Waller J said that such disclosure orders are commonly annexed to worldwide Mareva injunctions.  In my view the judge did not misdirect himself in respect of the nature of his discretion.”

44.Grupo Torras SA & Another v Sheikh Fahad Mohammed Al‑Sabah & Others and the quote from Mr Collins’s article must be properly understood.  That case concerned a worldwide injunction granted by an English court.  The plaintiff needed the information sought in order to identify the whereabouts of the defendants’ assets abroad so that steps could be taken there to protect its position over those assets.  Viewed pragmatically, the disclosure order was more important to the plaintiff because without it, the whereabouts of the defendants’ assets remained unknown.  The worldwide Mareva injunction would then serve no meaningful purpose.  It was only in such a context that the Mareva injunction was said to be ancillary to the disclosure order.  It does not support Mr Lee’s sweeping submission that in the present context a Mareva injunction is ancillary to the disclosure order.  That is certainly not the case when the Mareva injunction is no more than a domestic one, as is the case of the Hong Kong Injunction here.  There is no basis to treat the Further Disclosure Order as ancillary to the Hong Kong Injunction, thus justifying the very wide disclosure sought.

45.According to the head notes, the facts in Seed International Limited v Tracey & Others are these :

“ The plaintiffs/respondents applied to the Royal Court ex parte for freezing and disclosure orders in respect of Guernsey assets of the defendant/appellant company and those of its agent and the agent’s directors.

The defendant/appellant and its Dutch agent promoted investment primarily in wine (both current and future) among members of the medical and dental professions in the United States, including the plaintiffs/respondents, who were persuaded to deposit $1,000.00 into a Rotterdam bank account, which was later transferred to Cyprus and Guernsey accounts. The scheme was, however, fraudulent and had been operated without the necessary licences required by Dutch law. It was unclear whether the appellant had purchased wines on behalf of the investors at all—if it had, the quantity was certainly not enough to perform the contracts properly. Furthermore, the business methods used, which included high‑pressure salesmanship and concealment of significant contract terms, were highly questionable. The contract note received by an investor recorded a $1,000.00 deposit together with an unpaid balance (of which he was not previously made aware); the investor was effectively prevented from liquidating the investment, as it could only be sold after 12 months and upon payment of the outstanding balance. If the outstanding balance were not paid, the investor would forfeit his investment, and the structure of the scheme prevented him from recovering his funds without further investment. Investments were returned only after aggressive demands and actions from investors and their lawyers. When the Dutch police raided the agent’s offices, it found no evidence of the appellant’s and the agent’s accounts, and there was no indication of what had happened to the investors’ moneys. The plaintiffs brought actions in the Netherlands seeking remedies for unlawful conduct in breach of contract and in violation of Dutch law.

In November 2002, the Royal Court (Carey, Bailiff) granted the plaintiffs, inter alia, freezing orders over the Guernsey assets of the defendant, its agent and the agent’s directors, up to a value of $6.125m, and disclosure orders against the companies’ banks, requiring them to disclose details of their assets and accounts.  No disclosure was in fact made, and the orders were stayed whilst the defendant applied to set them aside on the basis that the plaintiffs had failed to establish a good, arguable case against it; they had not shown that there was a real and sufficiently serious risk of dissipation of its Guernsey assets; and the orders were not justified in the circumstances.  In May 2003, the Royal Court (Rowland, Deputy Bailiff) upheld the orders and extended the disclosure order to cover information concerning transfers out of any of the respondent’s Guernsey accounts, stating that the onus was on the defendant to show that it was right to set the orders aside, and that it had failed to discharge that burden of proof.  Meanwhile, in January 2003, substantive proceedings had commenced in the Netherlands.”

46.On appeal, the Guernsey Court of Appeal held that the Royal Court plainly had jurisdiction to make a disclosure order in the circumstances of the case.  The objective of making freezing and disclosure orders was the prevention of abuse.  The jurisdiction extended to making disclosure orders ancillary to freezing orders even where no proprietary claim was in issues.  Without the disclosure order, the freezing order over the appellant’s funds would be toothless, as the funds could be internationally instantaneously and might be very difficult to trace.

47.The Guernsey Court of Appeal heavily relied on Grupo Torras SA & Another v Sheikh Fahad Mohammed Al-Sabah & Others and the quote from Mr Collins’s article[8].  However, as already pointed out above, both that case and the quote from Mr Collins’s article do not assist the plaintiff.  We do not think Mr Lee can derive any help from this part of the Guernsey Court of Appeal’s judgment.

48.The disclosure ordered by the Guernsey courts went beyond the ambit of the associated freezing order.  The Guernsey Court of Appeal fully recognized that special feature.  It noted that in Derby & Co Ltd And Others v Weldon And Others (Nos 3 & 4) [1990] Ch 65, the English Court of Appeal left open for later decision the question whether a disclosure order could go beyond the ambit of a freezing order.[9]  Their Lordship however had no difficulty in concluding that, for the reasons they gave, such a disclosure order could be made though an exercise of its discretion would not be commonplace and would require a strong case to be made by the applicant.[10]

49.We are not aware of any appellate decision, whether in Hong Kong or England, and counsel have cited none, which has extended an ancillary disclosure order beyond the ambit of the underlying Mareva injunction.  Absent any local or English appellate authority on the point, we are not prepared to follow what the Guernsey Court of Appeal had done in Seed International Limited v Tracey & Others.  There can be no doubt that the Further Disclosure Order goes significantly beyond the ambit of the Hong Kong Injunction.  As we understand the law in Hong Kong, there is no basis for granting such disclosure in the circumstances now before us.

C4.   Conclusion

50.For the above reasons, in exercising our discretion afresh, we refuse to grant the Further Disclosure Order.

D.   DISPOSITIONS

51.We allow the appeal and set aside the Further Disclosure Order.

52.Costs should follow the event.  We make the following costs order nisi :

(1)  The costs order nisi made by Zervos J that the defendant shall pay the plaintiff’s costs is set aside and the plaintiff shall pay the defendant the costs below, to be taxed if not agreed.

(2)  The plaintiff shall pay the defendant the costs of this appeal, to be taxed if not agreed.

Mr Thomas Lee, instructed by Gall, for the plaintiff (respondent)

Ms Elaine Liu, instructed by ONC Lawyers, for the defendant (appellant)

[1] For present purposes, the footnotes to the Judge’s judgment are deleted.

[2] Hence it is not necessary to dwell on the other grounds of appeal or the respondent notice.

[3] At §9 of his judgment, citing Prema Birkdale Horticulture (Macau) Ltd v Venetian Orient Ltd [2009] 5 HKLRD 89.

[4] At p 210B-C.

[5] At p 210C-E.

[6] At p 215G.

[7] At pp 217C-219D.

[8] At §§35-38 of the judgment

[9] At §39 of the judgment

[10] At §§39-41, 44-47.